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The Environment For Agricultural and Agribusiness Investment in India: Policy Implications of Karnataka
The Environment For Agricultural and Agribusiness Investment in India: Policy Implications of Karnataka
The Environment For Agricultural and Agribusiness Investment in India: Policy Implications of Karnataka
ABSTRACT
The Government of Karnataka has developed Integrated Agribusiness Development Policy in
2011 covering agriculture and allied sectors By admitting the constraints and drawbacks in
Supply Chain Management (SCM), post-harvest losses and agri-exports, the government has
expected substantial changes in terms of technology, markets, institutions and policy and in turn,
to increase in income of farmers, states GDP, better value addition and above all the food
security. Among others the strategic objectives of the policy are: Substantial increase in
investment to the sector to increase agricultural value chain. Creation of favorable business
environment for private sector to take part in research related activities and agro-ecological
activities. Policy also aims to bring modernization in existing agri-infrastructure, cold chain,
controlled atmospheric storage, refrigerated, transport, agri-clinics, food processing corridor.
Agri-business investment regions, food parks, agri-SEZs etc, agro-based industry including dry
land farming, precision farming. To make the agri and allied sectors more effective, the policy
had given much importance for the prorate investment dose. The strategic view is to what extent
the sector will get more private investment from foreign as well as domestic investor to boost
agro-exports at par with the global standards.
Agribusiness include not only those that farm the land but also the people and firms that provide
the inputs for example, seed, chemicals, credit etc. process the output for example milk, grain,
meat etc., manufacture the food products for example ice cream, bread, breakfast cereals etc.,
and transport and sell the food products to consumers for example restaurants, supermarkets.
A business that earns most or all of its revenues from agriculture. An agribusiness tends to be a
large-scale business operation and may dabble in processing and manufacturing and/or
the packaging and distribution of products. Agribusiness is synonymous with corporate farming.
It combines the words agriculture and business and it involves a range of activities and methods
used involving modern food production. This involves farming, seed supply, agrichemicals, farm
machinery, wholesale and distribution of products, processing, marketing, and retail sales. They
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INTRODUCTION
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Asia Pacific Journal of Marketing & Management Review
Vol.1 No. 2, October 2012, ISSN 2319-2836
do not necessarily take into consideration environmental and social best practices when doing
business. Their ultimate result for their bottom line is profit.
REVIEW OF LITERATURE
Before we come up with the objectives and other aspects of the study, let us observe the
important studies already completed in this area. Braun et al (2005) have observed the strategic
issues and reform option for Indian agriculture and rural development. It has been addressed the
need of increasing investments in rural infrastructure and to promote pro-poor rural and
agricultural development. At the end, in the study it has been advised India to go for increase
investments in rural infrastructure, reorient its social safety nets to create more employment in
rural area and trade liberalization. The International Food Policy Research Institute (IFPRI) has
recommended to increase investments in rural infrastructure including transport and information
technology that connects villages and agricultural R & D. The study has advocated the necessity
of liberalizing its marketing and trade policies to encourage coordination between farms, firms
and forks (super markets) increased inflow and rural credit especially to small holders through
Non Banking Financial Corporations
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Pray and Latha Nagarajan (2012) International Food Policy Research Institutes (2012)
study on Innovation and Research by Private Agribusiness in India focuses on the private
innovations and its contribution to the agricultural productivity and incomes. The study has
disclosed that Research and Innovation by private industry led to the boom in cotton exports and
to rapid increases in exports of generic pesticides and agricultural machinery. Similarly increases
in innovation and Research and Development were led to increases in demand for agricultural
products, and in turn demand for land, labor and water saving inputs. Ultimately this will be
allowed large Indian Corporations, business houses, and foreign firms to invest in Agriculture
and Agribusiness.
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The study of Sharmas (2008) on Indians agrarian crises and corporate led contract
farming has explored the determinants of participation in contract farming in order to observe
whether contract farming affects the farm income or not. The study has focused on contract
farming and its importance in the present context. Contract farming enable farmers to access
better quality inputs such as seeds, fertilizers, pesticides, extension services and credit from the
corporate sector. The study has concluded that there is a need to promote non-political farmers,
organizations to improve small holders bargain power as well reduce transition costs to
agribusiness companies.
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Asia Pacific Journal of Marketing & Management Review
Vol.1 No. 2, October 2012, ISSN 2319-2836
religious dogma, improper plans by the policy makers, underdeveloped agricultural markets,
more restrictions in inviting private capital to boost agriculture sector and many more. The
income from agriculture is shrinking. At the same time the debt of the farmer is rolling year by
year. Therefore, the agriculture sector needs to be overhauled with private investment touch.
Hence, the analysis of the present study looks in to the need of private investment for agriculture
and agribusiness investment into India in general and the state of Karnataka in particular.
OBJECTIVES OF THE STUDY
The following objectives have been set for the present study:
1. To know the business environment for private sector to take part in research related
agricultural activities.
2. To analyze the wave of FDI in agriculture
3. To understand the options available for private investment in the newly introduced
Integrated Agribusiness Development Policy (IADP) 2011 of the Government of
Karnataka
METHODOLOGY
The present study is based on secondary data. We have analyzed the Integrated
Agribusiness Development Policy (IADP) 2011 of Government of Karnataka from the
investment angle. We have also used policy research of working papers of United States
Department of Agriculture, Economic Information Bulletin, Economic Research Service etc. we
have also used the policy measures available in International Food Policy Research Institute
(IFPRI).
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Indian Investment Regulation presently permits 100% FDI in most of the sectors and in most
cases with automatic approval. Key agricultural areas where FDI is currently not permitted viz.
agricultural production except for floriculture, horticulture, development of seeds, animal
husbandry, fisheries, cultivation of vegetables under controlled conditions, tea plantations and
services related to agriculture and allied sectors. FDI policy on Agriculture and allied activities
has been changed from time to time. For example, the important features of FDI policy of 2005
with regard to agriculture and allied sectors were:
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FDI POLICY
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Asia Pacific Journal of Marketing & Management Review
Vol.1 No. 2, October 2012, ISSN 2319-2836
But, the policy of FDI on agriculture has been changed during 2011. Let us observe the FDI
Policy on Agriculture and Animal Husbandry-2011.
TABLE: GOVERNMENT RESTRICTIONS ON LARGE INDIAN FIRMS, IMPORTS OF
TECHNOLOGY AND FOREIGN DIRECT INVESTMENT
Sector
1980s
Mid-1990s
Seed/biotech
Large
Indian
and
Foreign
Direct
Limited vegetable seed Investment
(FDI)
imports.
allowed
in
joint
ventures with Indian
Other seed imports firms.
prohibited.
Vegetable seeds Open
General
Licensing
(OGL).
Limited imports of
coarse
grain
and
oilseed seed.
Current
FDI allowed 100%
under noncontrolled
conditions since
April 2011.
Import of vegetable
seeds and other
seeds and planting
material allowed
under OGL.
Government imports of
rice, wheat seeds.
50%
formulation
reserved for
small industry.
No imports of
formulated
products.
Product
patenting
AI imports with
35% tariff.
No imports of
formulated
products.
No reservation
for small scale.
Customs duty
on imports as
high as 65%.
Imports
of
formulated products
allowed since 2004.
100% FDI allowed
through automatic
route since 2008.
Customs duty on
imports slashed to
7.5%.
Maximum
excise
duty is 15%.
Joined
TRIPS
WTO regime in
2005.
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New Active
Ingredients
(AIs) allowed
for limited time
at 150% tariff
and then must
manufacture in
India.
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Pesticides
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abolished in
1970.
Fertilizer
Restricted
to Same as 1980s.
cooperatives
and
Indian domestic firms.
Imports controlled by
government
under
Foreign
Exchange
Regulation
Act
(FERA).
Agricultural
Machinery
No imports and
restricted under
FERA.
Equipment
reserved
for
small-scale
domestic
enterprises.
No imports.
No reservation
on equipment.
Some
imports
allowed, especially
small
equipment,
including
power
tillers.
FDI allowed.
100%
foreign
ownership allowed.
Foreign firms
allowed in joint
ventures
for
tractors.
Import
restrictions 19992000
grandparent
Grandparent
stock imports allowed
stock imports continued.
under OGL.
restricted.
Sugar
Sugar industry
de-licensed in
1998.
Large
Indian
companies
can
invest outside.
Sugar
restricted.
Reserved until
1998,
when
deregulation
started.
FDI allowed up to
100% through the
automatic route.
imports
Quantitative
restrictions on
Import duty on
sugar up to 60%
since April 2011
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Tariffs at 25%.
Parent
stock
imports banned.
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Poultry
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exports
removed.
(previously removed
in 2009).
Futures trading
for
sugar
introduced.
Food
Processing
and
Reserved for
scale sector.
Supermarkets
Source: compiled from the FDI policy of India of various years.
FDI POLICY ON AGRICULTURE AND ANIMAL HUSBANDRY-2011
FDI is permitted up to 100% on the automatic route, subject to applicable laws/sectoral
rules/regulations/security conditions. 100% FDI is allowed via Automatic Approval. In case of
agriculture and animal husbandry sector, the allied sectors like floriculture, horticulture and
cultivation of vegetables and mushrooms under controlled conditions, development and
production of seeds and planting material. 100% FDI is also permitted in animal husbandry
(including breeding of dogs), pisciculture, aquaculture under controlled conditions and services
related to agro and allied sectors. Any import of genetically modified materials shall be subject
to the conditions laid down in the notifications of Foreign Trade (Development & Regulations)
Act, 1992. Import of materials shall be in accordance with the National Seeds Policy. Poultry
breeding farms and hatcheries where micro climate is controlled through advanced technologies
like incubators, ventilation systems etc.
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1.
2.
Development of agri-infrastructure is
proposed in the policy through PPP for
greater opportunities in agribusiness.
Proposed to create world class supply
chain infrastructure for providing
impetus to the development of agri and
allied sectors through development of
post-harvest
infrastructure,
agrocorridor etc.
Upgrade, modernize and augment
existing
industrial
infrastructure,
environment infrastructure, specialized
infrastructure
Development of agro-based industry Project opportunities for investment in IADPincluding food processing units
2011
1. Investment in agriculture and
allied sectors
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Strategic
areas
viable
agribusiness development
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Sl.
No.
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4.
107
3.
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6.
Agri-Horti,
Animal
Husbandry,
Fisheries, Education and Knowledge
hubs
7.
Special
Zones
8.
Investment Promotion
Agro-Tourism
Investment
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5.
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private sector.
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The major incentives available for large, MSME, large and Mega Agro-based industries and
Agri-Infrastructure are:
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Through the Karnataka Industrial Policy 2009-14, government has put efforts to concentrate the
entire state for industrial development. Moreover, Dr.D.M.Nanjundappa (an eminent economist)
Committee Report on Regional Imbalances has also suggested to extend some concession and
privileges to industrially backward districts and taluks in the state. In this direction the
government of Karnataka is putting its efforts towards the development of the whole state
irrespective of regions like old Mysore, Hyderabad-Karnatka, Bombay-Karnataka, Malnad etc.
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Asia Pacific Journal of Marketing & Management Review
Vol.1 No. 2, October 2012, ISSN 2319-2836
In India, more than four-fifth of farmers relay on farm saved seeds leading to a low seed
replacement rate. Therefore, Government of India has addressing this issue. Indian seed
programme including ICAR, Agri-Universities , state governments, farmers, plant breeds, cooperatives
and
private
sector
(Source:
Economic
Survey
2010-11,
p-95
www.indianbudget.nic.in)
But, the Department of Industrial Planning and Promotion through its press note, has
incorporated major changes to the consolidated FDI Policy. FDI has now been permitted in the
development and production of seeds and planting material without the stipulation of having to
do so under controlled conditions.
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In order to bring a green revolution, Government of India on 31st March, 2011 has
introduced New FDI Policy which aims at inviting FDI in the sectors which were closed for
foreign investment earlier. As per the circular, the investing company shall carryout the
cultivation of floriculture, horticulture, vegetables and mushrooms under controlled conditions,
wherein rainfall, temperature, solar radiation, air humidity are controlled artificially.
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Asia Pacific Journal of Marketing & Management Review
Vol.1 No. 2, October 2012, ISSN 2319-2836
The sector wise FDI inflows for agriculture services from April 2000 to May 2012 is
Rs.7015.01 crores, this is 0.84% to total FDI inflows (Rs.791854.12 crores) for the said period.
(www.dipp.nic.in)
TABLE: 01
PUBLIC AND PRIVATE INVESTMENT IN AGRICULTURE AND ALLIED SECTORS
IN TOTAL GDP AT MARKET PRICES (2004-05 PRICES)
(RS.IN CRORES)
Investment
Year
GDP at Market
Public
Private
Total
Public
Private
Total
2004-05
16182
62666
78848
3239224
0.5
1.9
2.4
2005-06
19909
73212
93121
3540559
0.6
2.1
2.6
2006-07
22978
71422
94400
3874632
0.6
1.8
2.4
2007-08
23040
86966
110006
4247918
0.5
2.0
2.6
2008-09
24452
114145
138597
4465360
0.5
2.6
3.1
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From table 01 It is the share of private sector in agriculture and allied sectors in total
GDP is considerable. Nearly 80% of investment in the agri & allied activities is made by the
private sector. The share of agriculture and allied sectors in total Gross capital Formation (GCF)
in % is 10.2% in 2008-09 whereas the share of public investment is 5.9%.(Table :02)
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Asia Pacific Journal of Marketing & Management Review
Vol.1 No. 2, October 2012, ISSN 2319-2836
TABLE: 01
GROSS CAPITAL FORMATION IN AGRICULTURE & ALLIED SECTOR (AT
2004-05 PRICES) (RS. IN CRORES)
GCF in Agriculture &
Allied Sector
GCF of Economy
Public
Private Total
Public
2004
-05
16182
62666
78848
2005
-06
19909
73212
2006
-07
22978
2007
-08
2008
-09
Year
Total
Public
Private
Total
240755 770168
1010923
6.7
8.1
7.8
93121
278703 894368
1173071
7.1
8.2
7.9
71422
94400
324342 1037543
1361885
7.1
6.9
6.9
23040
86966
11000
6
379495 1189514
1569009
6.1
7.3
7.0
24452
114145
13859
7
414122 1116851
1530973
5.9
10.2
9.1
A collective from both the stakeholders i.e. public and private in the forward and
backward linkages is the need of the hour. A private investment (either FDI or NRI or domestic
private) in agriculture will not only affect on agriculture but also on allied and related industries
sectors. FDI inflows to agriculture services also facilitated growth of other related areas (may be
in the procurement & marketing of agri and allied products) like roads, water supply, irrigation.
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Asia Pacific Journal of Marketing & Management Review
Vol.1 No. 2, October 2012, ISSN 2319-2836
To realize the stated issues, the following proposals have been made in the policy:
1. DEVELOPMENT OF AGRO-INFRASTRUCTURE
Proposed to create agro-corridor, agri-SEZs, agri-parks, common processing
centers, auction houses.
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Thus, to give proper solution to the above agriculture and allied sector needs an abundant fund,
technology, markets initiations of the Government and policy measures. In order to get good
value addition, the said sectors need to be overhauled with new technology.
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Asia Pacific Journal of Marketing & Management Review
Vol.1 No. 2, October 2012, ISSN 2319-2836
Creation of new fishing harbors and fish landing facilities with adequate forward
and backward linkages.
Upgrade, modernize and augmentation of existing industrial infrastructure and
environmental infrastructure.
2. RESEARCH, SKILL DEVELOPMENT AND EMPLOYMENT GENERATION:
Promoting excellence in basic, strategic and anticipatory research in crop science,
horticulture, veterinary science, animal science, dairy science, food processing, food
packing technology, food engineering,. It is also proposed to develop educational and
research institutes and training centres, skill development centers for capacity building
for sustained agricultural growth.
Arranging regular technology exchange programmes
Arranging regular technology programmes
Training programmes for target groups like farmers, farmer societies, Self Help
Groups, women development groups
3. AGRO-EXPORTS: In order to boost agro-exports, creation of new markets and new
product lines and develop alternate marketing channels, encouraging high realization and
value added exports meeting, meeting European Union and other international standards.
4. KARNATAKA AGRI BUSINESS DEVELOPMENT CORPORATION (KABDC):
Through the establishment of KABDC, it is expected to act this agency as a single
window for all the clearances. This corporation will also conduct the investors meets,
road shows etc.
5. DEVELOPMENT OF AGRI-INPUT SECTOR: For sustained agricultural growth, it is
planned to develop agri-input sector including the following:
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9. The government lands and agriculture farms of the government should be available to
the stakeholders on lease basis at concessional rates to takeup the agricultural
activities in a mass manner.
10. The environment should be prepared in such a way that the Potential investors can
locate the spots from the Land Bank (list of government lands available for
investment declared by the state government) for infrastructural facilities either in
earmarked industrial parks, SEZs or Industrial Estates very easily.
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8. In order to woo investment from nook & corner of the world, the policy has
contemplated the state government entering MoUs with regarding national and
international R & D and financial institutes
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7. Research and Development centres and human skill development centres in order to
protect the interest of the farmers need to be established at grass root level.
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7. www.indiabudget.com
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6. www.karnatakaagriculture
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5. www.indianagriculture.com